Cabinet OKs record ¥92.6 trillion budget

Shot in arm spells heavy bond issuance

Prime Minister Shinzo Abe’s Cabinet on Tuesday approved a record-high ¥92.6 trillion initial general-account budget for fiscal 2013, aiming to shore up the economy through large-scale public works projects.

But with 46.3 percent of the budget to be financed by new bond issuance, Abe will need to quickly hammer out a plan to restore the nation’s precarious fiscal health, already the worst among major developed countries.

The total size of the initial budget for the new fiscal year, which starts April 1, is higher than the previous initial-budget record of ¥92.4 trillion proposed in fiscal 2011. That budget, compiled by the previous government under the now-ousted Democratic Party of Japan, entailed generous spending programs for the general public, including bigger child allowances.

Tax revenues are expected to reach ¥43.1 trillion in fiscal 2013, exceeding new government bond issuance, at ¥42.8 trillion, for the first time in four years. Nontax revenue is expected to total ¥4.05 trillion.

The Finance Ministry said the deficit in the primary balance — annual tax revenues and nontax revenues minus outlays other than debt-servicing costs — is forecast to improve to ¥23.2 trillion in the fiscal 2013 initial budget from ¥24.9 trillion in the budget compiled for fiscal 2012.

Of the ¥92.6 trillion in outlays, ¥22.2 trillion will be allocated for national debt-servicing costs, while the remaining ¥70.3 trillion will be used for policy spending.

Spending on public works projects, a pillar of the prime minister’s “Abenomics” economic policy, will increase in fiscal 2013 for the first time in four years, up 15.6 percent from a year earlier to almost ¥5.3 trillion.

Social security outlays, the largest component of policy spending, total ¥29.1 trillion, up 10.4 percent, under the general account.

To fund contributions from the state coffers to the basic national pension program for the new fiscal year, Abe’s Liberal Democratic Party-led government also plans to issue ¥2.6 trillion in bonds, to be repaid by future revenues from the two planned hikes in the sales tax that start next year.

Defense expenditures are projected to total ¥4.7 trillion, up 0.8 percent from a year earlier. Part of the rise is due to the strengthening of surveillance in the nation’s territorial waters mainly due to the row with China over the Senkaku Islands in the East China Sea.

Apart from the general account budget, the government will earmark ¥4.4 trillion for the new fiscal year in the special account budget to accelerate reconstruction of areas devastated by the March 2011 megaquake and tsunami disasters, up 16.1 percent from the initial 2012 budget.

The budget for reconstruction work will total ¥25 trillion, up from ¥19 trillion, covering an ongoing five-year period from fiscal 2011.

Earlier this month, Abe’s administration endorsed a ¥13.1 trillion supplementary budget for fiscal 2012, which ends March 31, the second-largest of its kind, to fund an economic stimulus package in an attempt to add around 2 percentage points to Japan’s gross domestic product and create at least 600,000 jobs.

With the two budgets covering financing needs for 15 months, the government, formed after the LDP returned to power from a three-year hiatus in the Dec. 16 Lower House election, will aim to carry out seamless economic measures to end the nation’s chronic deflation.

Flexible fiscal spending is among Abe’s key “three arrows” — along with an aggressive monetary policy and growth strategies — that the government plans to flesh out by midyear.

In December 2011, then-DPJ Prime Minister Yoshihiko Noda’s Cabinet OK’d general-account spending of ¥90.3 trillion for fiscal 2012. That did not include the ¥2.6 trillion cost of maintaining state contributions to pension funds.